Does a Contract Extension Make Sense Right Now?
(Compiled from the 2nd virtual roadshow transcript and lightly edited.)
Q According to an economist at Morgan Stanley I talked with about a month ago, this pandemic produced what is called an exogenous shock to the economy, which typically produces immediate chaos but a short recession and quick recovery. In this case that is what is happening: The US economy bottomed out last July, corporate profits reached pre-pandemic levels Q1 2021, and corporate revenues are on track to do so by June 2021. Employment always takes longer to recover. The airline industry will lag but will also recover.
Since the contract negotiations will take several years, and I’ve read that the pay part of negotiations happens at the end, we should be well into recovery by the time our pay is negotiated. Without this extension our prior contract already has been extended. Many Flight Attendants don’t believe another extension makes sense. Can the economist comment on this?
Yes, the economist can. First off, I don’t know which corporations are operating at pre-pandemic levels of profitability in the first quarter of 2021.Obviously airlines aren’t, and I guess the question really is in terms of the next year following the amendable date without a TA the difference between 1.5% and 0% is kind of what we’re looking at.
So, when I when I say that I mean we are not going to get that money back in a future year by saying we gave it up, (but) we want it back in 2023 or 2024. It’s kind of a lost opportunity in my book. To look at with the contract opening in December of 2021where would we be in a year if we didn’t extend, and I would say we would have gotten zero percent pay increases for sure as opposed to a 1.5 percent pay increase for sure.
So, I agree that the airline industry lags behind the rest of the economy. The economy is forecast to grow very strong coming out of this recession, but I do think it’s really a question of do you want a one and a half percent pay raise or a zero percent pay raise over the next year after the amendable date. That’s really the question on the table because I don’t think there’s any way to negotiate this money back in some future period to make up for what we gave up.Aviation Economist Dan Akins – FlightPath Economics, LLC
Almost every section of the agreement has an economic impact, and when you’re bargaining, if the company is really in cash preservation mode, then even sections you wouldn’t think like sick leave and vacation–any little work rule improvement that you want there–they’re looking at how is that going to impact on sick leave rates, how it’s going to impact on vacation utilization and so forth. In that context what you find once you get into scheduling and reserve, they’re looking at all of those work rules that you wouldn’t necessarily think as economic items as well. So, in the context where a company is either concerned about cash burn or they’re concerned about rebuilding cash reserves, all of the sections of the contract become a lot more difficult to negotiate, and things really slow down.
In part we know the answer here because we know that negotiations were proceeding at a pace such as (at) American and Southwest. Even though they…already started their negotiations, those negotiations essentially stalled out. Even though they weren’t at (the) economics (yet), just because there wasn’t going to be or there wasn’t any progress being made. When there [were] substantive discussions, the company was coming in and demanding concessions.
So, the other thing I think to take into account is Jeff went over your position in the industry [regarding pay ray rates earlier in the roadshow], and … one of the features of bargaining in this industry is we do something called “leapfrog bargaining.” What that means is we’re able to win increases at one carrier that provides a platform for the next Flight Attendant group to come back and use those increases as an argument about why they need more.
So, for example the Hawaiian Flight Attendants got an increase right before the pandemic. Those negotiations centered on where was everyone else situated, and we had a big fight with [Hawaiian management]. It was really based on what the comparators in the industry, and how does that affect our negotiations. One of the difficulties if you try to speed up your negotiations in front of everybody else is that your comparators haven’t had a chance to get the increases that they normally would have gotten. American you know we would have hoped but for the pandemic that they would have been in a better place right now with their contract. If they had gotten some good increases, that provides a better basis for you to get increases and so forth. United, Spirit and all of that.
You want to be … doing your timing correctly … in order to get the increases … that you really want in these negotiations. We need some of these other work groups to get in there and also be fighting for increases otherwise you’re going to be a little bit ahead of the curve.
This one-and-a-half percent, it’s basically in line when you do an extension. You don’t get a massive increase, but you get something to kind of keep you where you’re at until you can have a more favorable point.AFA Director of Collective Bargaining Joe Burns
From my experience with negotiating for AFA Alaska, it’s exactly like what Joe has been saying about what Flight Attendant might think is not economic because it’s not specifically having to do with the step rate–so the pay rate–or say the vacation value or something like that. They think that’s not economic, all the other things, but they actually are…. Say open time is an example of something that we may want to likely revisit, and it does have an economic impact because … it does impact staffing, and therefore it costs the company money…. A sensitive topic that we will address at some point is say TFP versus block, and there’s a whole conversation that could be had on that, but … again it’s an economic conversation.
So, if we didn’t delay, (then) we would go to the table [in September], and we would quickly blaze through the non-discrimination (policy), all the stuff that we agree to right away, or the very low-lying things about certain definitions or updating and incorporating LOAs that we’ve already agreed to into the contract.
Once we’re done with that, then it really is like all of it is economic: reserve, scheduling, hours of service, obviously pay, vacation, sick leave. So, it would just make it challenging to have those conversations and probably would not be extremely productive for some period of time, and that’s why we have brought it to you guys for consideration whether this is our best strategic position to enter negotiations [in September or to extend for a year].MEC President Jeff Peterson